Genco Shipping emerges from bankruptcy

September 2014 | DEALFRONT | BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

September 2014 Issue

Genco Shipping and Trading Limited emerged from Chapter 11 bankruptcy protection in July having reduced its debt pile by around $1.2bn. Genco’s exit plan won the approval of the Bankruptcy Court for the Southern District of New York.

US Bankruptcy Judge Sean Lane announced that he had approved the company’s exit plan on 2 July, rejecting claims from Genco’s existing equity holders that the plan undervalued Genco’s worth and would ultimately leave them with less than they are entitled to. The committee of equity security holders, including Och-Ziff Capital Management Group and Aurelius Capital Partners LP, felt that Genco’s actual worth was somewhere between $1.54bn and $1.9bn. Indeed, the firms argued that Blackstone Advisory Partners LP, which advised Genco, made incorrect assumptions about the company and industry to undercut some shareholders’ distribution. Accordingly, Genco believed that it was worth no more than $1.48bn. Genco argued its highest valuation was less than the $1.48bn required to pay all creditors in full before holders of the company’s equity would receive anything.

Those shareholders that opposed the company’s reorganisation scheme sought a valuation by Rothschild Inc. Rothschild noted that it felt that Genco’s actual value exceeded its claims by $97m to $467m. However, the means by which the companies arrived at those valuations varied considerably. Where Blackstone based its valuation on asset value, Rothschild used market conditions and projections which it believed to be more realistic. However, Blackstone’s projections didn’t take into account that since 2008 more than $19bn worth of private capital had been invested in the maritime industry “by sophisticated, return-driven investors”, according to Rothschild. “The deployment of capital conflicts with Blackstone’s main thesis which drives its low valuation of Genco,” said Neil Augustine, Rothschild’s managing director, in a 20 June court filing.

The firm filed for bankruptcy in April citing an outstanding and unserviceable debt pile of around $1.5bn and listed assets of $2.4bn. The company suggested that weakness in global charter rates was one of the key drivers for its bankruptcy filing. Genco also noted that it would be unable to continue as an ongoing concern unless it drastically reduced its debt and reorganised its business. The company was one of a raft of shipping companies to file for bankruptcy protection in recent months; indeed, the company has been joined by Excel Maritime Carriers, Overseas Shipholding Group, STX Pan Ocean, General Maritime, B&H Ocean Carriers, ZIM Integrated Shipping Services, Nautilus Holdings and Ermis Martiime Shipping in financial difficulty of late.

Under the terms of the company’s approved exit plan, Genco, which owns or operates vessels that transport iron ore, coal, grain, steel and other products worldwide, arranged for a comprehensive reduction of its debt. The firm has also raised around $100m in new capital through a rights offering and eliminated $192.8m in amortisation payments and $40m in annual interest payments. In a statement released on 9 July confirming the company’s bankruptcy exit, John Wobensmith, Genco’s chief financial officer, said “Today marks the successful completion of our financial restructuring and the start of a new chapter for Genco. With a substantially deleveraged balance sheet and an infusion of new equity capital, we are well positioned for growth and success. I thank our customers, vendors and employees for their support throughout this process.”

Genco initially filed for bankruptcy with a pre-packaged reorganisation plan. The firm proposed a $100m rights offering for around 8.7 percent equity stake in the reorganised Genco. Eighty percent of the rights offering was to be backstopped by credit facility lenders and the remaining 20 percent by the firm’s bondholders. The pre-packaged deal also called for the company’s 2007 credit facility, worth $1.06bn, to be converted to 81.1 percent equity in the newly reorganised Genco. The firm’s existing credit facilities, worth $253m and $100m, will be amended to expire in 2019. In addition, the company’s convertible bondholders will get 8.4 percent equity in the reorganised company.